Insurers praise legislative changes to capital standards

Insurance industry groups including the Property Casualty Insurers Association of America have applauded new legislation that means the Federal Reserve can apply different capital standards to insurers compared with those applied to banks.

A bipartisan group of lawmakers in the US Senate and House of Representatives including Senator Susan Collins introduced legislation this week that instructs the Federal Reserve to take state insurance capital standards into account when crafting rules for insurance groups that fall under its supervision.

The legislation, which has long been lobbied for by the industry, amends Section 171 of the Dodd-Frank Act and makes it clear that the Fed does not have to apply bank capital standards to insurers. Instead, the Fed can take into account differences between banks and insurers when implementing capital standards.

The Property Casualty Insurers Association of America said the legislation recognises the fundamental differences between insurance and bank business models and acknowledges that a one-size-fits-all model for regulation won't work.

“Without this legislation, many PCI member companies that own community banks or other relatively small depository institutions may be forced to quit the banking industry because of the potential regulatory costs and challenges that will be imposed by the Fed,” said Nat Wienecke, PCI’s senior vice president of federal government relations.

Groups representing the insurance industry have long argued that insurance groups should not be held to the same standards as banks. This legislation means they have got their way.

“As I have said, and as experts have testified before the banking subcommittee on financial institutions, the Federal Reserve already has ample authority to draw distinctions between banking and insurance. Our bill removes any doubt about the Federal Reserve's authority to draw this distinction and addresses the legitimate concerns raised by insurers,” said Collins.

The Fed would also be barred from forcing insurers to switch from statutory accounting principles to generally accepted accounting principles when filing financial statements.

Wienecke added: “PCI applauds Senators Sherrod Brown, Susan Collins, Mike Johanns and Representatives Gary Miller and Carolyn McCarthy for introducing The Insurance Capital Standards Clarification Act of 2014. PCI has long been advocating against the one-size-fits-all model for regulation and we are pleased that there is broad, bipartisan agreement to clarify that any capital standards for insurance holding companies with depository institution affiliates are appropriately tailored to insurance.”